With home loan rates the lowest they’ve ever been, most Aussies could spare a few minutes to review their rate and consider switching lenders. Why stay loyal to a bank when huge savings could be made by switching?
New research from the Reserve Bank of Australia (RBA) has found borrowers with older variable rate home loans have higher interest rates across the board compared to new customers. On average, the research showed older loans were about 40 basis points (0.40%) higher than new rates available.
On a $250,000 loan, 0.40% difference makes an extra $1,000 in interest payments each year.
According to The Australian Financial Review, the banks are rejecting what has been coined the ‘loyalty tax’. However the basis point difference between old and new loans have contributed $3.1 billion to the collective annual net profit of the big four.
So does it really pay to be loyal to a bank? In its latest Statement on Monetary Policy, the RBA recommends refinancing to another lender.
“Existing borrowers who are able to refinance with another lender or negotiate a better deal with the existing lender can achieve interest rate savings” – RBA.
“Let’s say a borrower initially took out a loan for $400,000 with the average variable rate in the Mozo database of 3.71%^, but decides to refinance their loan once their balance hits $250,000 after 18 years and 4 months. If they were to refinance to the lowest variable rate in the Mozo database, which belongs to Reduce Home Loans at 2.59% (2.60% comparison rate*), while still making their initial repayment amount, they’d save a massive $26,174 and shave 14 months off their loan term.” – Mozo.com
Reduce Home Loans general manager Josh Beitz says ‘On average, Reduce Home Loans clients are saving up to $3000 – $3500 a year and even in some cases $7000 and up to $11,000 a year’.
All in all, it doesn’t pay to be loyal to the banks, it makes sense to switch and save.
If you’re ready to find out how much you could save by refinancing your home loan, give Reduce a call to discuss your options.This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.